Welcome to Ten Bagger, where Lowell Resources Fund chief investment officer John Forwood gives us his take on a sector of the ASX resources market full of value.<\/p>\n
This month, John tells us why he\u2019s taking a closer look at unlisted explorers and why he likes the copper story in 2024.<\/p>\n
Funds managers like Lowell\u2019s (ASX:LRT)<\/a> CIO John Forwood often like to look further down the ASX at the early stage explorers to find the companies with real 10-bagger potential.<\/p>\n But capital markets have been dire in the past year and a half and the opportunities to get in on the ground floor of new ideas have been fewer and farther between.<\/p>\n Over new 100 resources companies listed on the ASX in a mini-boom in 2021.<\/p>\n Currently just six companies of any kind are slated to list on the ASX in the coming months.<\/p>\n One, Capstone Copper, is a Canadian mid cap chasing a secondary listing in Australia while another, Far Northern Resources, has been delayed after originally planning a tilt on the bourse in 2023.<\/a><\/p>\n It\u2019s a situation that has Forwood and Lowell looking to unlisted explorers to get in early, increasing its exposure to companies not listed on any exchange from 6% to 12% in recent months.<\/p>\n \u201cThat\u2019s because the market has been so tough. I know there\u2019s been three junior resources companies that have listed on the ASX in the last month or two,\u201d Forwood said.<\/p>\n \u201cOne was gold, one was rare earths and one was lithium and the standout one obviously was that lithium float Kali Metals (ASX:KM1)<\/a>, which has more than doubled from its IPO price. <\/a><\/p>\n \u201cBut that\u2019s definitely a very limited number and last year there was almost none. <\/p>\n \u201cThese opportunities which are coming to us would probably in a decent market have been coming to us as an IPO. But they\u2019re coming to us as a seed opportunity with varying potential timeframes to IPO.\u201d<\/p>\n \u00a0<\/p>\n Among those unlisted opportunities, Forwood has taken a liking to those dabbling in the copper space.<\/p>\n While copper never reached the great heights predicted by bulls last year, at between US$3.50-3.80\/lb, the commodity has held up against a slide in other battery metals.<\/p>\n And supply pressures are mounting.<\/p>\n \u201cOn the demand side, we\u2019ve seen China build a lot of smelters over the last couple of years and the demand for concentrate is really, really tight. There\u2019s a lot of demand and treatment charges and refining charges have fallen significantly over the last 12-18 months as a result of that,\u201d Forwood said.<\/p>\n \u201cSo there\u2019s a lot of demand for concentrate and the supply is really being squeezed. Over the last last month or so we saw Teck come out and say it wasn\u2019t going to meet its production forecast from Quebrada Blanca, its big copper mine. <\/p>\n \u201cSimilarly, Anglo has come out and said we\u2019re going to be 200,000 tonnes per annum short on our production forecast on copper, which is a big chunk of the world market. <\/p>\n \u201cAnd then of course, late last year we saw First Quantum basically looking like their Cobre Panama mine in Panama is really challenged in terms of how it\u2019s ever going to resume full scale operations again, given the legislative and social swing against it.\u201d<\/p>\n Gold majors have been bullish about expanding copper production, Forwood noted, with the shift of pure play goldies into the red metal a sign of its long term potential.<\/p>\n \u201cWe\u2019ve got five unlisted companies that we\u2019ve invested in over the last six months which have greater or lesser exposure to copper and the most recent one is an unlisted company called Mogotes Metals, which is in Argentina in a very exciting emerging porphyry copper belt,\u201d Forwood said.<\/p>\n \u201cWe\u2019re pretty excited about getting involved in that company. There\u2019s definitely been increasing exposure to copper (in the fund) over the last six months.\u201d<\/p>\n There are few ways for retail investors to get access to pre-IPO or seed stage companies, but investing in listed funds like Lowell which invest in them is an option to gain a secondary holding.<\/p>\n However, Forwood noted patience was needed with unlisted companies, which don\u2019t enjoy the liquidity of the public market.<\/p>\n \u201cThey\u2019re coming to us as a seed opportunity with varying potential timeframes to IPO. Some of them potentially quite quick,\u201d he said.<\/p>\n \u201cA lot of them would IPO in 2024 if the markets open up. If not, they\u2019re probably going to have to do another seed round and hope to do it in 2025. <\/p>\n \u201cYou\u2019ve got to be prepared to be very patient. It can take a long time. Six months can turn into six years in terms of getting to an IPO. Very, very easily. <\/p>\n \u201cBy the nature, that means we put less dollars in because it\u2019s illiquid and we can\u2019t easily exit but we think that the quality of the opportunities are very, very good and they do stand a good chance of getting listed if and when the markets open up.\u201d<\/p>\n \u00a0<\/p>\n Lowell enjoyed a 22.8% lift in NAV per unit after distributions last year, largely driven by a well-timed investment in Azure Minerals (ASX:AZS)<\/a> ahead of a premium takeover bid for the explorer from Chile\u2019s SQM.<\/p>\n That compared to a 12.1% return for the ASX 300 resources index and 1.2% drop in the Small Resources Accumulation Index.<\/p>\n Often companies in the throes of transitioning from developer to producer are the strong performers, earning a rerate as they move towards cash flow.<\/p>\n But for 2024, Forwood says early stage explorers who make promising discoveries \u2014 think 2023 success stories Azure, Wildcat (ASX:WC8)<\/a> and WA1 (ASX:WA1)<\/a> \u2013 are more likely to enjoy the support of the market with trouble for recent new producers weighing on the minds of investors.<\/p>\n \u201cWe\u2019ve got quite a big grassroots exploration position and we\u2019ve got quite a lot of cash, and we\u2019ve got relatively little in the middle in terms of development,\u201d Forwood said.<\/p>\n \u201cThat\u2019s still the case because it\u2019s been so tough for developers.<\/p>\n \u201cWe\u2019re seeing (lead miner) Galena Mining (ASX:G1A)<\/a> talk about a \u2018strategic review\u2019, we\u2019re seeing Core Lithium (ASX:CXO)<\/a> cease mining operations and just treat stockpiles.<\/p>\n \u201cIt\u2019s extremely tough to be a new producer at the moment. I saw a great contrast between Kali Metals, a new exploration float, and Core Lithium. Core\u2019s gone from $1.20 to 20-odd cents whereas Kali\u2019s gone from IPO at 25c and it\u2019s now at 64c (62c by Friday close). <\/p>\n \u201cAt the moment it seems it\u2019s better to travel than to arrive, as in it\u2019s better to explore than to develop.\u201d<\/p>\n With development funding harder to come by, Forwood predicted majors could look to take on development projects from juniors struggling to raise capital.<\/p>\n \u201cAnother really good quote I heard last week is a junior\u2019s funding problem \u2026 is a major mining company\u2019s development pipeline,\u201d he said.<\/p>\n \u201cSo the big companies can just look at all these projects that are shovel ready, permitted, feasibility is done and say: \u2018I quite like the look of that one, I\u2019m going to go and buy that little company.’\u201d<\/p>\n The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.<\/em><\/p>\n <\/span><\/p>\n The post TEN BAGGER: Why fundies are looking off the ASX for the next big thing<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Copper the metal to watch in 2024<\/h2>\n
Value uplift is shifting down the food chain<\/h2>\n